Andrew Lukas, AJ Lucas Group Limited: Learning’s from the UK Market: How They Are Working with Communities

Learning from the UK Market: How They Are Working with Communities Andy Lukas, AJ Lucas Group Ltd East Coast Gas Markets Conference, Sydney Oct 2013

Learning from the UK Market: How They Are Working with Communities

• What is the UK shale market and its resources?

• What are the challenges UK developers are facing in exploring?

• What is being done in UK to alleviate community concerns surrounding fracking?

• What can Australian producers learn from the UK market?

Today’s Presentation

• What is the shale gas “fracking” process?

• What are the local environmental risks? (such as groundwater pollution, water usage, emissions, visability, “earthquakes” etc.)

• What are the larger climate risks?

• What’s in it for us?

What is on the community’s mind?

• Founded in Sydney in the 1950’s, now ASX (AJL)

– specialist, niche engineering and construction in energy and water sectors

– world leader in coal seam gas drilling,

– oil & gas pipelines, water processing and water pipelines,

– world leader in horizontal directional drilling

– Investor in coal seam gas, shale – owner operator

– large fleet of owned equipment to suit the pipelines, drilling ,HDD

• Strategic partnerships:

– China Petroleum Pipeline Bureau (CNPC)– CSG, shale gas, HDD, pipelines

– Spiecapag – world leader in major high pressure cross country pipelines,

– Cuadrilla > 400 tcf shale gas resource in UK

– Xtreme Coil – North American coil drilling company

– Groupe Marais – micro trenching technology for telecoms & power cables

Who is AJ Lucas?

4

Page 5

Investor in Oil & Gas Fields

Bowland Shale Gas UK 50% owner and active participant in Bowland > 400 tcf shale gas resource - exploration and pilot well planning and engineering as well as drilling and hydraulic fracturing

Weald Shale Oil UK 56% owner and active participant in Weald shale gas and shale oil resource in UK – planning and engineering of exploration and pilot wells

Monument County, Texas oil shale prospect interests

Canning Basin, WA 8,000 sq.km in Western Australia

Gloucester Coal Seam Gas: (sold) Formerly 75% owner and operator for exploration and pilot well development programme for Gloucester

Sydney Gas: (sold) Formerly 20% owner - exploration and development of Hunter Valley CSG and Camden fields i0-50 JV with AGL.

Wolleebee Creek Qld (sold) Formerly 15% owner of PEL651 in Surat Basin

Lucas owns 44% of Cuadrilla

• Formed in 2007, UK company

• First to spot shale gas opportunity

in Europe

• Acquired most prospective acreage

before anybody else identified the

potential

• Diversified acreage portfolio throughout Europe – spreading the risk

• Largest acreage holding in Europe outside of the major oil companies

• Partnered with government or industry-specialist funds

• Ownership of own rig to reduce reliance on external service providers

6

Exploration assets

•Netherlands ≈ 680,000 acres

•UK Bowland basin ≈ 293,000 acres

•UK Weald basin ≈ 57,000 acres

•Poland ≈ 440,000 acres

Licenses in the UK, The Netherlands, Poland

CUADRILLA EUROPEAN PLAYS

PEDL165, EXL269 Bowland Shale Fm 293,190 acres Multi-TCF Shale Gas

KOSP (EDL244, EXL189) Kimmeridge Clay FM Limestone Oil Play 57,189 acres Unconventional Oil

Lublin Trough (Pionki, Ryki) Silurian/Devonian/Carboniferous 446,741 acres Multi-TCF Tight Gas and Shale Gas

Noord Brabant Carboniferous, Triassic, Jurassic 476,666 acres Tight Gas, Shale Gas, Oil Shale

Noordoostpolder Namurian Shales 202,379 Acres Multi-TCF Shale Gas

What is the UK shale market?


UK gas production supplies a

decreasing share of UK demand

UK Uses > 4 tcf / year of gas

UK Uses > 4 tcf / year of gas

Electricity is only about 1/3 of usage

• 36% gas goes to heat ~ 1.4 tcf/year

• 36% of gas goes to electricity and associated uses ~ 1.4 tcf / year

• 28% to industry and other customers ~ 1.2 tcf/year

Use of Gas

Heat

Electricity

Industry

Other

(Department of Energy and Climate Change) 11

UK offshore and shale gas production

and net gas imports

UK still uses a lot of coal UK coal plants are being de-commissioned, but in the

meantime, our electricity depends on coal and gas

(Gridwatch Oct 16 2013, 6:30am)

What is the UK shale resource?


Cuadrilla Gas Bubbling from New Core

15

British Geological Survey Study

Upper limit 2,281 tcf Lower Limit 822 tcf Central est. 1,329 tcf Cuadrilla: PEDL > 400tcf

Cuadrilla in Bowland

• Bowland Basin is a very significant shale gas

resource play

• Over 1000m (>3300 ft) thickness of shale

• Shale is naturally fractured (free + absorbed

gas)

• Cuadrilla: Gas in Place (GIIP) > 200+ tcf

• BGS: 1300 tcf

– Many places GIIP > 1 tcf / sq.mile

– 1000’s feet below aquifers – not enough energy to

frac into aquifers

– Very close to major pipeline infrastructure

– Market ready for this gas

• DECC/ HSE approved, in alignment with

government policy

17

What are challenges for UK shale explorers?


Approvals needed from:

• Department of Climate Change is regulator oil & gas exploration

– Three step approvals : exploration, production pilots, production

• All exploration and development needs local government approvals – Councils are poorly equipped to evaluate

• European law requires Environmental Impact Assessment

• Environment Agency approves impact on water and disposal or waste

• Health & Safety Executive approves well design

Long Approvals Chain

Exploration in the UK – how it works

Business model, does anyone understand David beck,....Steve Sommers. Planning guys

Herbert Huppert.

Water...he will think about this and get back. Discussed Andrew Quarles and I going to Cambridge.

License is granted by DECC to explore DECC, EA, HSE are the national regulators Drilling must occur within 5 years

Site temporary permission is granted by County Council


Herbert Huppert.


An exploration well is drilled and tested Commercial viability of the well is calculated

• Water – Aquifer contamination

– Water use

– Flowback water disposal

• Seismicity

• Landscape and community impact -

• Emissions – local health impact, greenhouse gas

• Impact on renewables investment

Issues of Concern

Risks as EA represents What are the risks to air, land and water in

the UK?Tanks or Storage

LagoonProduction

Platform

Aquifer

Confining

Layers

Production

Zone

Water Table

Clean water

Contamination of

groundwater due

to mobilization

of solutes or

methane

Contamination of

groundwater due

to poor well

design or failure

Fugitive

emissions of

methane

Contamination of

soil, surface or

groundwater due

to spills of

chemicals or

return fluids

Inadequate

transport or

treatment of

wastes &waste

waters

Impact on water

resources from

water taken from

the environment

Inadequate

transport or

processing of

produced gas

(Source: Environment Agency 2013)

Risks as perceived:

Water is the biggest issue

(Source: BritainThinks, Lancashire Tracking Sept 2013)

Benefits as perceived:

Jobs, future employment, investment

Q. Which do you think is the most important potential benefit? [500 adults aged 18+ interviewed by telephone between 6th and 21st August 2013]

3%

6%

1%

1%

2%

2%

3%

6%

7%

8%

15%

47%

Don't know

None/no potential benefits

A proportion of the money generated would go into afund to benefit the local community

Cleaner than other fossil fuels

The development of a new industry for Lancashire

Can be developed without any public money

Developing new skills in the community

Investment in the local community

Future employment opportunities in the area for today'spupils and students

Reduced reliance on foreign gas

Cheaper energy

Job creation

Dart rebuttal....

Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc.

mini Ipcc. Every claim w rebuttal

State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea

[email protected]

Dart rebuttal.... Laidlaw Egan ... Do spade word before or after

High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal


[email protected]

Dart rebuttal....

Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal

State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea [email protected]




[email protected]

Dart rebuttal....

Laidlaw Egan ... Do spade word before or after High level to start with, sedimicity etc Turks water etc. mini Ipcc. Every claim w rebuttal

State ownership mineral rights, vs private ownership Dan Lewis. Philip booth. In iea [email protected]


Men (who are more likely to support)

see water pollution as the most

important disadvantage (33% Men

compared with 24% Women)

Women (who are more likely to be

opposed) see earth tremors as the most

important disadvantage (29% Women

compared with 19% Men)


Herbert Huppert.



Herbert Huppert.



Perceptions of Aquifer Contamination

Water use – the scare story

Fracking water make-up

Fugitive methane

Seismic Risks

Shale battleground on hydrocarbons

Greenpeace, Friends of Earth using shale gas as battleground against hydrocarbons Delaying tactics via Judicial Reviews

What is being done to alleviate community concerns about fracking?


• Engage early and often

• Proactive engagement – Small and large meetings

– Site tours

– Presentations, community participation

• Research, to better understand how the issues are seen – released to media

• Communications – before, during, and after permitting and operations

33

Cuadrilla strategy

Shale gas – different views

Government • Energy security • Economic

development • Taxes Regulator

• Controversial activity

• Threat of judicial review

Operator • Proven methods

to mitigate risk • Need for

exploration activity

Community • Risk with no

obvious gain • Disruptive

Shale gas – different views

Government • Energy security • Economic

development • Taxes

Regulator • Controversial activity • Threat of judicial

review

Operator • Proven methods to

mitigate risk • Need for exploration

activity

Community • Risk with no obvious

gain • Disruptive

NGOs • Climate change • Environmental risk

Media • Polarising fight – good

for eyeballs! • Skepticism

The Resident • Anxious • Mostly undecided




[email protected]

Cuadrilla strategy

36

Prove that shale gas from the Bowland can be developed safely, and in an environmentally responsible, community-acceptable fashion

1. Technical Prove that gas is present, technically recoverable, of a predictable quality and quantity

2. Socio-political Earn the social license to operate

Balcombe well test, good plan

Ea chemicals approval Problem for Balcombe is loci dental that Cuadrilla learns what chemicals are in what. But we don't know

about it. Between mfg Matt idea, that we specify what we put in additives Clear Solutions., a supplier who takes accountability

REACH compliant. Eu registrations. Chris Tomorrow the day to hear from Roseacre. One landowner, name picovance(?)

Plumpton soon. Early signing agreement for Friday, not going to happen. Plumpton also one horse, name

wendslies.

Balcombe Wscc, could validate within next couple days . Thinks quality planning app poor, presentation not good,

pixelated, didn't flow, etc Get Arup to rewrite it. Urgently

Tony. IT strategy review Moreland. Going well Frac kit will all be gone tomorrow Need a paragraph to defend the story, and Francis.... Met chairman of alkane, roger Macdowall . Meet hi and CEO next Friday

Trespass. One let c take chances I court Treasury, needs legislative fix Chris CBRE working on valuations

Des Correia.

Takes the risk out of the technical side.

Correct bad imagery

Industrial Education

38

Conventional and Unconventional

Fracturing makes path through nano

sized pores

Sustainable development Meeting present needs without compromising the future

Security & diversity of

supply

Environmental sustainability

Social acceptance

Economic efficiency

Sustainable development

(Framework -- Brian HorsfIeld, Helm Holtz GFZ Center Potzdam 2013)

Well Integrity – triple layer thru aquifer

Water Use - the reality is very small

Hydraulic fracturing and its

associated operations account

for 6.15% of the life cycle

freshwater consumption




[email protected]

The reality

4KM (2.5 mi) 8” wellbore (Credit: Ground Gas Solutions 2012)




[email protected]

Seismic risks

Injection can lubricate faults, cause small tremors

Cuadrilla’s two events: 1 April 2.3 ML and 27 May 2011 1.5 ML

Subsequently we have

1. Conducted 3D survey (better a-priori knowledge of faults)

2. Planned to hydrofracture in smaller stages

3. Placed seismometers and tiltmeters in arrays around sites (real-time data)

4. Agreed a “traffic light” mitigation system, at 0.5ML threshold

Seismic Risks – the reality

(Davies et al, 2013)

Is fracture height a cause for concern?

– Maximum fracture length circa 588m/1919 ft

– The top of the Bowland shale is at a depth of circa 6000 feet

(Davies et al, 2012)

Fugitive methane – the reality

National Academy of Sciences

“The study finds that natural gas sites release 0.42 percent of methane produced --

which equals 48 million metric tons of carbon dioxide equivalent (CO2e) per year, or

the emissions from 10 million automobiles -- into the atmosphere. That value is slightly

lower than U.S. EPA's current estimate of 0.47 percent.”

(vs “3.6% to 7.9% of the methane from shale-gas production escapes to the

atmosphere in venting and leaks over the life- time of a well.” – Howarth et al)

(“Measurements of methane emissions at natural gas production sites in the United States” NAS Sept 2013 “Methane and the greenhouse-gas footprint of natural gas from shale formations”

Howarth, Santoro, Ingraffea, 2011) )




[email protected]




[email protected]

Fugitive methane – the reality Green completion methods eliminate fugitive methane issue

Hydraulic fracturing and its associated

operations account for 1.17% of the

life cycle GHG emissions (Marcellus

operations)

(Laurenzi/ Jersey ExxonMobil LCA 2013)




[email protected]




[email protected]

GHG Emissions – the reality

(Potential Greenhouse Gas Emissions Associated with Shale gas Production and Use- DECC 2013)




[email protected]




[email protected]




[email protected]

Cuadrilla water makeup and management

• What goes in

– Mains water from United Utilities (already has a biocide)

– Polyacrylamide (classified as non hazardous by the EA) , to reduce friction and improve the suspension of sand in the water

– Sand

• What Comes Out

– Very salty water

– Various minerals from the rock, metals – very dilute solution

– NORM (Naturally occurring radiation)

– Flow back water is classified as non hazardous by the Environment Agency – is captured, processed at industrial facility

• We are aiming for a water recycling model

Getting better imagery

52

The beginning of moderate consensus

“We have to face it: North Sea gas production is falling…So UK shale gas could increase our energy security by cutting those imports. “Home-grown gas, just like home-grown renewables and new nuclear, also provides jobs for our people and tax revenues for our society. “Nobody can say, for sure, how much onshore UK shale gas resource exists …so we can’t bank on shale gas to solve all our energy challenges.

First, fracking has real potential to drive energy bills down…It’s simple – gas and electric bills can go down when our home-grown energy supply goes up. Secondly, fracking will create jobs in Britain. In fact, one recent study predicted that 74,000 posts could be supported by a thriving shale-gas industry in this country… Thirdly, fracking will bring money to local neighbourhoods.

Support for fracking has increased

while opposition is slightly reduced

15%

21%

23%

29%

34%

33%

31%

22%

23%

12%

11%

10%

11%

12%

10%

Oct-12

Dec-12

Aug-13

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% of respondents

Strongly support Support Neither support nor oppose Oppose Strongly oppose




[email protected]




[email protected]

56%

44%

Dart rebuttal....

Laidlaw Egan ... Do spade word before or after

High level to start with, sedimicity etc Turks water etc.


State ownership mineral rights, vs private ownership

Dan Lewis. Philip booth. In iea

[email protected]

Dart

rebutt

al....

Laidla

w Ega

n ... D

o spad

e word

befor

e or a

fter

High l

evel to

start

with

, sedim

icity e

tc Turk

s wate

r etc.

mi

ni Ipc

c. Ever

y claim

w re

butta

l Sta

te ow

nersh

ip mi

neral

rights

, vs pr

ivate

owne

rship

Dan L

ewis.

Philip

booth

. In ie

a Pb

ooth@

ica.co

.uk


56% support, 20% oppose, undecided

moving to support

15%

21%

23%

29%

34%

33%

31%

22%

23%

12%

11%

10%

11%

12%

10%

Oct-12

Dec-12

Aug-13

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% of respondents


Q.Thinkingabouteverythingwehavediscussed,howmuchdoyousupportexplora on,inyourarea,tounderstandthepoten alfornaturalgasfromshaleintheUK?[500adultsaged18+interviewedbytelephoneinOctober2012}][December2012base:503;October2012base:1,001]

15%

21%

23%

29%

34%

33%

31%

22%

23%

12%

11%

10%

11%

12%

10%

Oct-12

Dec-12

Aug-13

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

% of respondents


Q.Thinkingabouteverythingwehavediscussed,howmuchdoyousupportexplora on,inyourarea,tounderstandthepoten alfornaturalgasfromshaleintheUK?[500adultsaged18+interviewedbytelephoneinOctober2012}][December2012base:503;October2012base:1,001]


59% men support, 39% woman support

Dart rebuttal....

Laidlaw Egan ... Do spade word before or after

High level to start with, sedimicity etc Turks water etc.


State ownership mineral rights, vs private ownership

Dan Lewis. Philip booth. In iea

[email protected]




[email protected]


What can Australian Producers Learn from UK?


Shale gas is sustainable development

Cuadrilla’s Message

Forces at work – need to work together

Sustainable development of

shale gas

Industry itself

Community parish councils

Planning and permitting authorities

Skill and supply chain

Grid authorities

Government leadership

Wildly Exaggerated risks

Anti fossil fuel Ideology

Required support

The goal

Hijacking

dialogue

Scaremongering

59

What can we learn, going forward?

• Proactive, early engagement is best

– EIA studies are essential

• Government, regulators, local leaders must work together!

• Pick a frame and stick to it

– A local offer, with environmental certainty

– Jobs and future skills are real benefits

– Water is the most important issue

• Encourage collaboration

– Government, regulators, local leaders must work together

• Find a meaningful benefit narrative

– US – energy anxiety

– South Africans – the next gold industry

– Brits – protecting lifestyle (growing Govt & Independent energy anxiety)

• Gas from unconventional sources is about safety and ensuring it through regulation

• Needs political leadership to formulate and impose effective regulation to be seen to be looking after the interests of the general public.

• Properly engineered and executed unconventional gas extraction is safe.

• The government to exercise wisdom in the distribution of the economic and social benefits throughout the community.

• We need to create sufficient vested interests across the community. We, the community, should be the beneficiaries of its commercial exploitation.

• In the 1970's, NSW and Queensland were confronted by the introduction of irrigation, water licences and new farming techniques. At the time, these were threatening to the status quo. Where would agriculture and farmers be today had it not been for new technologies in water and farming introduced 40 years ago?

• Unconventional gas development is analogous

Safety and regulation

• National conversation about community benefit and safety in relation to our gas resource and its extraction.

• At the community level, it is not possible to tell whether shale gas or coal seam gas is a long-term threat, or a long-term benefit.

• Media opportunists amplify the anxieties of protesters, and unfortunately government and industry present the substantial local and national benefits in a disordered way.

• Is there a consistent story?

• The "story" needs to be one people are allowed and guided to gather for themselves; and not be harangued in the process.

• The industry and government need to give people a method or process which allows them to access information sessions in a productive way.

• Deliberate misinformation needs to be eliminated

• What's needed is a query -based process, allowing people to ask questions and hear the facts from all sides in response to their issues.

We need to talk!

Andrew Lukas, AJ Lucas Group Limited: Learning’s from the UK Market: How They Are Working with Communities

Business

shale gas production

uk gas production

weald shale gas

uk shale market

uk shale resource

tcfyearuse of gas

uk shale explorers

oil gas pipelines